TIDMPIP
This announcement contains inside information as stipulated under the Market
Abuse Regulations (EU) no. 596/2014 ("MAR").
23 October 2019
PipeHawk plc
("PipeHawk" or the "Company")
Final results for the year ended 30 June 2019
Chairman's Statement
I can report that turnover for the year ended 30 June 2019 was GBP6.7 million
(2018: GBP4.8 million), an increase of 39.6%. The Group made an operating profit
in the year of GBP57,000 (2018: GBP408,000 loss) and a profit before taxation for
the year of GBP12,000 (2018: GBP502,000 loss) and a profit after taxation of GBP
312,000 (2018: GBP151,000 loss). The earnings per share for the year was 0.91p
(2018: loss per share 0.45p).
The second half of the year benefitted from a pre-tax profit of GBP129,000 as a
one-off item in relation to the reduction of the amount of debt due to the
vendors of Thomson Engineering Design.
The politicians faffing around with Brexit has undeniably had an effect on this
year's results and to some extent continues to do so. However, UK business has
generally had to move on, and delayed orders have eventually been placed such
that we have had a very reasonable second half of the year. The unaudited
results for the second six months of the year saw turnover of GBP3.8 million, a
pre-tax profit of GBP176,000 and a post-tax profit of GBP300,000.
QM Systems
QM Systems has made great progress this year and I am pleased to report an
increase in sales achieved to approximately GBP4.5 million with a profit before
tax and management charges of approximately GBP330,000, despite incurring
significant recruitment fees as we increased our engineering resource pool. It
is worth noting that during the second half of the financial year, QM Systems
generated an unaudited revenue of approximately GBP2.6 million with a profit of
approximately GBP229,000 indicating that the business is now running at a
significantly higher revenue rate and profit margin. The increase in both
turnover and profit during the second six months is a direct result of
recruitment, throughout the 2018 calendar year, of engineering resource to our
mechanical/software and manufacturing teams. Our overhead remained largely
unaffected when compared to the previous year demonstrating that the business
had been well prepared for the anticipated growth. In addition, closer project
management on each job has seen a marked improvement in profit margin retention
across all projects compared to previous years.
Order intake for the period has been excellent with orders received of GBP5.6
million during the 2018/19 FY. We have carried over approximately GBP2.6 million
of orders into our current financial year and the first three and a half months
to date have seen a further order intake of GBP2.7 million. Quotation activity
remains buoyant and we are expecting a number of further orders to land
throughout the current financial year. It is encouraging to see that our new
order intake is spread widely across current and new clients alike
demonstrating that QM Systems maintains excellent client retention as well as
attracting new clients, largely through reputation and word of mouth.
We have seen a real mix of orders awarded, with orders ranging in size from
approximately GBP50,000 to well over GBP2 million. Orders have been awarded across
a wide range of industrial sectors including Marine, Automotive, Retail, Rail,
Petrochemical, Aerospace, Building Services and Food and Beverage. This
demonstrates that QM Systems continues to actively expand its client base
across multiple industries; continuing to build a robust and stable business
model.
We have seen a number of service contracts established within 2018 and 2019 and
we have now established a structured service division within QM Systems that we
will continue to grow to create a continuous business stream. We have also
seen, as expected, an increase in sales of the Test Interface System for one of
our key clients in the Petrochemical industry. Our high end robotic vision
system developed with a key partner within the aerospace industry has been
completed and installed at our first client's facility, and is gaining a
significant level of interest within the wider aerospace industry. We fully
expect that this product will be sold into a number of locations globally over
the next few years.
Progress on two of our larger projects with Penso and Cox Powertrain has been
excellent with both projects currently undergoing commissioning and
installation. Both projects are due for completion within the first half of
this current financial year.
It is most reassuring to see that in the face of the material uncertainty that
surrounds the current progress with Brexit, QM Systems has both returned to
a good level of profitability and laid the foundations for ongoing future
success.
Thomson Engineering Design ("TED")
PipeHawk acquired TED in November 2017 and, following a slow start to the 2018/
19 FY, the increase in TED's quotation activity has translated into orders
placed resulting in a strong final six months of the period. Revenue realised
for the year was GBP681,000, however GBP457,000 of this revenue was realised during
the final six months of the financial year. TED contributed a post-tax profit
to the Group of GBP4,000.
Order intake for the UK market has been mixed and slower than expected, in part
due to the delayed release of Network Rail funding for larger infrastructure
projects. Sales growth has been predominantly achieved through the expansion of
international markets where distributors for France and the Asia Pacific
Territories have been established. TED has also commenced trading within the
Canadian Market.
Both quotations and order intake since the year end have been buoyant. In
particular quotation activity has been very strong internationally and
particularly outside of Europe, with a number of significant orders
anticipated. Quotation activity has continued within Europe, however, given the
material uncertainty that exists around Brexit, many clients are outwardly
unwilling to commit orders until Brexit has been delivered and trading terms
are clear.
The Group has supported TED with investment in new and innovative products.
During the year TED completed the release of its brand new E-Clipper and
Threader dragger products, together with a light weight version of its 7
Sleeper Spreader. TED has achieved sales for all of these products with new and
existing clients, with the E-Clipper and 7 Sleeper Spreader products seeing
particularly strong interest. TED has also sold a number of the Mast
Manipulator products both within the UK and abroad.
TED, with the support of the Group, is continuing to invest in the next range
of innovative products which will further support the success already achieved
with the existing products mentioned above.
The team at TED has worked hard to re-open doors with previous clients. This
has resulted in success with four previous clients who had not worked with TED
for some time. It seems the rail infrastructure industry is beginning to
acknowledge TED's capability in providing cost effective ergonomic solutions to
all manners of handling requirements. In particular, feedback following
delivery of orders has been very positive indeed with a number of clients
wishing to explore the other products or services that TED has to offer.
During the year the Company agreed a reduction of the amount of debt due to the
vendors of TED to GBP71,000. The Company acquired TED with a debt due to vendors
of TED amounting to GBP200,000, and so this reduction has added GBP129,000 to the
Company's consolidated profits for the year ended 30 June 2019.
Technology Division
New unit sales for 2018/19 financial year have remained broadly static in
comparison to the previous year in terms of quantum. However, the markets in
which those sales have been achieved has changed markedly, with Middle East &
Asia now overtaking Europe for the first time, indicating the switch of focus
away from EU countries is beginning to bear fruit.
Over the same time, the UK market has seen an increase in sales of upgrades,
accessories and servicing, as customers working predominantly in the utilities
sector continue to invest in existing equipment rather than renewals or fleet
growth. To capitalise on this trend, marketing efforts have lately shifted away
from attendance at large "whole market" shows and events to smaller venues,
offering greater focus on face-to-face meetings. R&D resources have also been
committed to find new ways to extend servicing and maintenance regimes beyond
home markets.
Over the same period our R&D efforts have also resulted in a number of
improvements to hardware design which have delivered a measurable reduction in
unit costs. Going forward, the cost reductions are expected to continue, as
more of those improvements work through to production.
As access to EU based grant funding begins to close with the approach to
Brexit, new opportunities are being sought for funding of next generation
systems. A number of bespoke development avenues available through industry
consortia are also being pursued.
Adien
Adien's results were somewhat disappointing after a positive start to the year,
undoubtedly affected by the failure to resolve Brexit one way or the other,
which resulted in work scheduled for May and June 2019 being delayed until
after the year end. Nevertheless, the strategy of consolidation and improvement
has continued and Adien has recently secured a number of sole supplier
frameworks for five years plus, principally in the power and defence sectors;
these are expected to provide a steady income stream for the next 3 to 5 year
period.
In addition, Adien is in the early stages of trialling a new service which will
continue to build on the concept of providing a "one stop shop" to our key
clients.
The levels of business activity since June 2019 have risen considerably despite
the political issues that remain ongoing.
Financial position
The Group continues to be in a net liability position and is still reliant on
my continuing financial support.
My letter of support dated 24 October 2018 was renewed on 7 October 2019 for a
further year. Loans, other than those covered by the CULS agreement, are
unsecured and accrue interest at an annual rate of Bank of England base rate
plus 2.15%.
The CULS agreement for GBP1 million, provided by myself, was renewed last year
and extended on identical terms, such that the CULS are now repayable on 13
August 2022.
In addition to the loans I have provided to the Company in previous years, I
have deferred a certain proportion of fees and the interest due until the
Company is in a suitably strong position to make the full payments.
Historically, my fees and interest payable have been deferred. During the year
under review, this amounted to GBP216,000. At 30 June 2019, these deferred fees
and interest amounted to approximately GBP1.6 million in total, all of which have
been recognised as a liability in the Company's accounts.
Strategy & Outlook
The PipeHawk group remains committed to creating sustainable earnings-based
growth and focusing on the expansion of its business with forward-looking
products and services. One small such acquisition has been made since the year
end in Wessex Precision Instruments Ltd, where I expect with synergies and cost
savings an early return to its profitability. PipeHawk acts responsibly towards
its shareholders, business partners, employees, society and the environment in
each of its business areas.
PipeHawk is committed to technologies and products that unite the goals of
customer value and sustainable development. All divisions of the Group are
currently performing well and I remain optimistic in my outlook for the Group.
Gordon Watt
Chairman
22 October 2019
Enquiries:
PipeHawk Plc Tel. No. 01252 338 959
Gordon Watt (Chairman)
Allenby Capital (Nomad and Broker) Tel. No. 020 3328 5656
David Worlidge/Asha Chotai
Notes to Editors
For further information on the Company and its subsidiaries, please visit:
www.pipehawk.com
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2019
Note 30 June 2019 30 June 2018
GBP'000 GBP'000
Revenue 2 6,680 4,789
Staff costs 5 (3,265) (2,703)
Operating costs (3,358) (2,494)
Operating profit/(loss) 4 (408)
57
Sale of shares in joint venture - 142
Profit/(loss) before interest and taxation 57 (266)
Finance costs 3 (45) (236)
Profit/(loss) before taxation 12 (502)
Taxation 7 300 351
Profit/(loss) for the year attributable to 312 (151)
equity holders of the parent
Other comprehensive income - -
Total comprehensive profit/(loss) for the 312 (151)
year attributable to equity holders of the
parent
Profit/(loss) per share (pence) - basic 8 0.91 (0.45)
Profit/(loss) per share (pence) - diluted 8 0.72 (0.45)
The notes below form an integral part of these financial statements.
Consolidated Statement of Financial Position
at 30 June 2019
30 June 2019 30 June 2018
Note
Assets GBP'000 GBP'000
Non-current assets
Property, plant and equipment 9 525 481
Goodwill 10 1,190 1,190
1,715 1,671
Current assets
Inventories 11 134 178
Current tax assets 315 372
Trade and other receivables 12 1,592 1,175
Cash and cash equivalents 774 19
2,815 1,744
Total assets 4,530 3,415
Equity and liabilities
Equity
Share capital 17 344 340
Share premium 5,205 5,191
Retained earnings (8,896) (9,208)
(3,347) (3,677)
Non-current liabilities
Borrowings 13 2,661 2,966
Trade and other payables 14 3 8
2,664 2,974
Current liabilities
Trade and other payables 14 3,270 1,972
Borrowings 15 1,943 2,146
5,213 4,118
Total equity and liabilities 4,530 3,415
The notes below form an integral part of these financial statements.
Consolidated Statement of Cash Flow
For the year ended 30 June 2019
Note 30 June 2019 30 June 2018
GBP'000 GBP'000
Cash flows from operating activities
Loss from operations 57 (408)
Adjustments for:
Depreciation 90 106
Profit on disposal of fixed asset (13) -
134 (302)
Decrease in inventories 44 10
(Increase) in receivables (417) (196)
Increase in liabilities
1,570 143
Cash used in operations 1,331 (345)
Interest paid (147) (87)
Corporation tax received
358 232
Net cash generated from/(used in)
operating activities 1,542 (200)
Cash flows from investing activities
17 197
Proceeds from sale of joint venture
Acquisition of subsidiary net of - 11
cash acquired
Purchase of plant and equipment (75) (17)
Proceeds from disposal of fixed 16 -
assets
Net cash (used in)/generated from (42) 191
investing activities
Cash flows from financing activities
Proceeds from borrowings - -
Repayment of loan (676) (10)
Repayment of finance leases (69) (34)
Net cash used in financing (745) (44)
activities
Net increase/(decrease) in cash and 755 (53)
cash equivalents
Cash and cash equivalents at 19 72
beginning of year
Cash and cash equivalents at end of
year 774 19
The notes below form an integral part of these financial statements.
Statement of Changes in Equity
For the year ended 30 June 2019
Consolidated Share Share Retained Total
capital premium earnings
account
GBP'000 GBP'000 GBP'000 GBP'000
As at 1 July 2017 330 5,151 (9,057) (3,576)
Loss for the year - - (151) (151)
Other comprehensive
income - - - -
Total comprehensive - - (151) (151)
income
Issue of shares 10 40 - 50
As at 30 June 2018 340 5,191 (9,208) (3,677)
Profit for the year - - 312 312
Other comprehensive
income - - - -
Total comprehensive - - 312 312
income
Issue of shares 4 14 - 18
As at 30 June 2019 344 5,205 (8,896) (3,347)
The share premium account reserve arises on the issuing of shares. Where
shares are issued at a value that exceeds their nominal value, a sum equal to
the difference between the issue value and the nominal value is transferred to
the share premium account reserve.
The notes below form an integral part of these financial statements.
1. Summary of Significant Accounting Policies
General information
PipeHawk plc (the Company) is a limited company incorporated in the United
Kingdom under the Companies Act 2006. The addresses of its registered office
and principal place of business are disclosed in the company information on
page 3. The principal activities of the Company and its subsidiaries (the
Group) are described on page 8.
The financial statements are presented in pounds sterling, the functional
currency of all companies in the Group. In accordance with section 408 of the
Companies Act 2006 a separate statement of comprehensive income for the parent
Company has not been presented. For the year to 30 June 2019 the Company
recorded a net profit after taxation of GBP81,000 (2018: loss GBP126,000).
Basis of preparation
The financial information set out in this announcement does not constitute the
company's statutory accounts for the years ended 30 June 2019 or 2018. The
financial information for the year ended 30 June 2018 is derived from the
statutory accounts for that year, which were prepared under IFRSs, and which
have been delivered to the Registrar of Companies. The financial information
for the year ended 30 June 2019 is derived from the audited statutory accounts
for the year ended 30 June 2019 on which the auditors have given an unqualified
report, that did not contain a statement under section 498(2) or 498(3) of the
Companies Act 2006.
The financial statements have been prepared in accordance with international
financial reporting standards as adopted by the EU and under the historical
cost convention. The principal accounting policies are set out below.
The Group has adopted IFRS 9 Financial Instruments and IFRS 15 Revenue from
Contracts with Customers from 1 July 2018. As detailed in the accounting
policies below the Directors have assessed that the adoption of these standards
has no material impact on transition.
A number of new standards and amendments to standards and interpretations have
been issued but are not yet effective and in some cases have not yet been
adopted by the EU.
The directors are in the process of considering the potential changes that may
occur to the financial statements under IFRS 16 "Leases". This is expected to
apply to periods commencing on or after 1 January 2019 and therefore will
impact the Group for the first time in the financial statements for the year
ended 30 June 2020. Under the new standard the substantial majority of the
Groups operating lease commitments would be bought onto the balance sheet and
depreciated separately. There will be no impact on cashflows although the
presentation of the cash flow statement will change significantly. As set out
in note 20 the future aggregate minimum lease payments of the Groups operating
leases were GBP189,000 at 30 June 2019 on an undiscounted basis.
Basis of preparation - Going concern
The directors have reviewed the Parent Company and Group's funding requirements
for the next twelve months which show positive anticipated cash flow
generation, prior to any repayment of loans advanced by the Executive Chairman.
The directors have furthermore obtained a renewed pledge from GG Watt to
provide ongoing financial support for a period of at least twelve months from
the approval date of the Group and Parent Company statement of financial
positions. The directors therefore have a reasonable expectation that the
entity has adequate resources to continue in its operational exercises for the
foreseeable future. It is on this basis that the directors consider it
appropriate to adopt the going concern basis of preparation within these
financial statements. However a material uncertainty exists regarding the
ability of the Group and Parent Company to remain a going concern without the
continuing financial support of the Executive Chairman.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries). Control
is achieved where the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are
included in the consolidated statement of comprehensive income from the
effective date of acquisition or up to the effective date of disposal, as
appropriate. Where necessary, adjustments are made to the financial statements
of subsidiaries to bring their accounting policies into line with those used by
other members of the Group. All intra-group transactions, balances, income and
expenses are eliminated in full on consolidation.
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the
acquisition method. The cost of the business combination is measured as the
aggregate of the fair values (at the date of exchange) of assets given,
liabilities incurred or assumed, and equity instruments issued by the Group in
exchange for control of the acquiree. The acquiree's identifiable assets,
liabilities and contingent liabilities that meet the conditions for recognition
under IFRS 3 Business Combinations (revised) are recognised at their fair
values at the acquisition date, except for non-current assets (or disposal
groups) that are classified as held for sale in accordance with IFRS 5
Non-current Assets Held for Sale and Discontinued Operations, which are
recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially
measured at cost, being the excess of the cost of the business combination over
the Group's interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities recognised.
Goodwill
Goodwill arising on the acquisition of a subsidiary or a jointly controlled
entity represents the excess of the cost of acquisition over the Group's
interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities of the subsidiary or jointly controlled entity
recognised at the date of acquisition. Goodwill is initially recognised as an
asset at cost and is subsequently measured at cost less any accumulated
impairment losses.
For the purpose of impairment testing, goodwill is allocated to each of the
Group's cash-generating units expected to benefit from the synergies of the
combination. Cash-generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when there is an indication
that the unit may be impaired. If the recoverable amount of the cash-generating
unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the
unit and then to the other assets of the unit pro-rata on the basis of the
carrying amount of each asset in the unit. An impairment loss recognised for
goodwill is not reversed in a subsequent period.
On disposal of a subsidiary or a jointly controlled entity, the attributable
amount of goodwill is included in the determination of the profit or loss on
disposal.
Investments in joint ventures
A joint venture is a contractual arrangement whereby the Group and other
parties undertake an economic activity that is subject to joint control that is
when the strategic financial and operating policy decisions relating to the
activities of the joint venture require the unanimous consent of the parties
sharing control.
The results and assets and liabilities of joint venture are incorporated in
these financial statements using the equity method of accounting, except when
the investment is classified as held for sale, in which case it is accounted
for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations. Under the equity method, investments in joint ventures are carried
in the consolidated statement of financial position at cost as adjusted for
post-acquisition changes in the Group's share of the net assets of the joint
venture, less any impairment in the value of individual investments. Losses of
a joint venture in excess of the Group's interest in that joint venture (which
includes any long-term interests that, in substance, form part of the Group's
net investment in the joint venture) are recognised only to the extent that the
Group has incurred legal or constructive obligations or made payments on behalf
of the joint venture.
Any excess of the cost of acquisition over the Group's share of the net fair
value of the identifiable assets, liabilities and contingent liabilities of the
joint venture recognised at the date of acquisition is recognised as goodwill.
The goodwill is included within the carrying amount of the investment and is
assessed for impairment as part of that investment. Any excess of the Group's
share of the net fair value of the identifiable assets, liabilities and
contingent liabilities over the cost of acquisition, after reassessment, is
recognised immediately in profit or loss.
Where a Group entity transacts with a joint venture of the Group, profits and
losses are eliminated to the extent of the Group's interest in the relevant
joint venture.
The investment in joint venture is held at cost in the parent entity financial
statements
Revenue recognition
For the year ended 30 June 2019 the Group used the five-step model as
prescribed under IFRS 15 on the Group's revenue transactions. This included the
identification of the contract, identification of the performance obligations
under the same, determination of the transaction price, allocation of the
transaction price to performance obligations and recognition of revenue.
The point of recognition arises when the Group satisfies a performance
obligation by transferring control of a promised good or service to the
customer, which could occur over time or at a point in time.
Sale of goods
Revenue generated from the sale of goods is recognised on delivery of the good
to the customer on this basis revenue is recognised at a point in time. There
is no change to the accounting policy resulting from the adoption of IFRS 15.
Sale of services
In relation to the design and manufacture of complete software and hardware
test solutions and the provision of specialist surveying, revenue is recognised
through a review of the man-hours completed on the project at the year-end
compared to the total man-hours required to complete the projects. Provision is
made for all foreseeable losses if a contract is assessed as unprofitable.
Management do not consider the impact of IFRS 15 to have a material impact on
the financial statements because contracts with customers have one performance
obligation, the delivery of the system solution or mapping drawings and the
Group has a right to payment for performance completed to date.
Revenue represents the amount of consideration to which the Group expects to be
entitled in exchange for transferring promised goods or services to a customer,
excluding amounts collected on behalf of third parties.
Revenue from goods and services provided to customers not invoiced as at the
reporting date is recognised as a contract asset and disclosed as accrued
income within trade and other receivables.
Although payment terms vary from contract to contract invoices are in general
raised in advance of services performed. Where billing has exceeded the revenue
recognised in a period a contract liability is recognised and this is disclosed
as payments received on account in trade and other payables.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and accumulated impairment losses. Depreciation is charged so as to write off
the cost of assets over their estimated useful lives, using the straight-line
method. The estimated useful lives, residual values and depreciation method are
reviewed at each year end, with the effect of any changes in estimate accounted
for on a prospective basis. Assets held under finance leases are depreciated
over their expected useful lives on the same basis as owned assets or, where
shorter, the term of the relevant lease. Gains and losses on disposals are
determined by comparing the proceeds with the carrying amount and are
recognised within the Statement of Comprehensive Income.
The principal annual rates used to depreciate property, plant and equipment
are:
Equipment, fixtures and fittings 25%
Motor vehicles 25%
Inventories and work in progress
Inventories are stated at the lower of cost and net realisable value. Costs,
including an appropriate portion of fixed and variable overhead expenses, are
assigned to inventories by the method most appropriate to the particular class
of inventory, with the majority being valued on a first-in-first-out basis. Net
realisable value represents the estimated selling price for inventories less
all estimated costs of completion and costs necessary to make the sale.
Work in progress is valued at cost, which includes expenses incurred on behalf
of clients and an appropriate proportion of directly attributable costs on
incomplete assignments. Provision is made for irrecoverable costs where
appropriate.
Financial assets
IFRS 9 supersedes IAS 39 Financial Instruments: Recognition and Measurement
with new requirements for the classification and measurement of financial
assets and liabilities, impairment of financial assets and hedge accounting.
IFRS 9 introduces a new forward-looking impairment model based on expected
credit losses to replace the incurred loss model in IAS 39. This determines the
recognition of impairment provisions as well as interest revenue.
The Group adopted IFRS 9 from 1 July 2018 with retrospective effect in
accordance with the transitional provisions.
The Group's principal financial assets are cash and cash equivalents and
receivables.
The Group has assessed the impact of IFRS 9 on the impairment of its financial
assets and has concluded that the change in the impairment is immaterial.
While cash and cash equivalents are also subject to the impairment requirements
of IFRS 9, the identified impairment loss was immaterial.
The Group's financial assets consist of cash and cash equivalents and trade and
other receivables. The Group's accounting policy for each category of financial
asset is as follows:
Financial assets held at amortised cost
Trade receivables and other receivables are classified as financial assets held
at amortised cost. They are initially recognised at fair value plus transaction
costs that are directly attributable to their acquisition or issue and are
subsequently carried at amortised cost using the effective interest rate
method, less provision for impairment.
Impairment provisions are recognised when there is objective evidence (such as
significant financial difficulties on the part of the counterparty or default
or significant delay in payment) that the Group will be unable to collect all
of the amounts due under the terms receivable, the amount of such a provision
being the difference between the net carrying amount and the present value of
the future expected cash flows associated with the impaired receivable. For
receivables, which are reported net, such provisions are recorded in a separate
allowance account with the loss being recognised within administrative expenses
in the statement of comprehensive income. On confirmation that the receivable
will not be collectable, the gross carrying value of the asset is written off
against the associated provision.
The Group's financial assets held at amortised cost comprise other receivables
and cash and cash equivalents in the statement of financial position.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to
the cash flows from the asset expire; or it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another
entity.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities. Equity instruments
issued by the Group are recorded at the proceeds received, net of direct issue
costs.
Financial liabilities
Financial liabilities, including borrowings, are initially measured at fair
value, net of transaction costs. Financial liabilities are subsequently
measured at amortised cost using the effective interest method, with interest
expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of
a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the financial
liability, or, where appropriate, a shorter period.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group's
obligations are discharged, cancelled or they expire.
Finance leases
Assets held under finance leases are initially recognised as assets of the
Group at their fair value at the inception of the lease or, if lower, at the
present value of the minimum lease payments. The corresponding liability to the
lessor is included in the statement of financial position as a finance lease
obligation.
Lease payments are apportioned between finance charges and reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly to profit or
loss. Contingent rentals are recognised as expenses in the periods in which
they are incurred.
Operating leases
Operating lease payments are recognised as an expense on a straight-line basis
over the lease term, except where another systematic basis is more
representative of the time pattern in which economic benefits from the leased
asset are consumed. Contingent rentals arising under operating leases are
recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases,
the aggregate benefit of incentives is recognised as a reduction of rental
expense on a straight-line basis, except where another systematic basis is more
representative of the time pattern in which economic benefits from the leased
asset are consumed.
Pension scheme contributions
Pension contributions are charged to the statement of comprehensive income in
the period in which they fall due. All pension costs are in relation to
defined contribution schemes.
Share based payments
Equity-settled share-based payments to employees and others providing similar
services are measured at the fair value of the equity instruments at the grant
date. Details regarding the determination of the fair value of equity-settled
share-based transactions are set out in note 20.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based on
the Group's estimate of equity instruments that will eventually vest. At each
statement of financial position date, the Group revises its estimate of the
number of equity instruments expected to vest. The impact of the revision of
the original estimates, if any, is recognised in profit or loss over the
remaining vesting period, with a corresponding adjustment to reserves.
Foreign currencies
Monetary assets and liabilities denominated in foreign currencies are
translated into sterling at the rates of exchange ruling at 30 June.
Transactions in foreign currencies are recorded at the rates ruling at the date
of the transactions.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred
tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in the consolidated statement of
comprehensive income because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Group's liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by
the year end date.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted for using the
statement of financial position liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences, and deferred tax
assets are generally recognised for all deductible temporary differences to the
extent that it is probable that taxable profits will be available against which
those deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises from goodwill
or from the initial recognition (other than in a business combination) of other
assets and liabilities in a transaction that affects neither the taxable profit
nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences
associated with investments in subsidiaries and associates, and interests in
joint ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and interests are only
recognised to the extent that it is probable that there will be sufficient
taxable profits against which to utilise the benefits of the temporary
differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each statement of
financial position date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the
asset to be recovered. Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply in the year in which the liability is
settled or the asset realised, based on tax rates (and tax laws) that have been
enacted or substantively enacted by the year end date. The measurement of
deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Group expects, at the reporting date, to
recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
Current and deferred tax for the year
Current and deferred tax are recognised as an expense or income in the
statement of comprehensive income, except when they relate to items credited or
debited directly to equity, in which case the tax is also recognised directly
in equity.
Impairment of property, plant and equipment
At each year end date, the Group reviews the carrying amounts of its property,
plant and equipment to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where it is not possible to estimate the
recoverable amount of an individual asset, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can be identified, corporate
assets are also allocated to individual cash-generating units, or otherwise
they are allocated to the smallest group of cash-generating units for which a
reasonable and consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset (or
cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been
recognised for the asset (or cash-generating unit) in prior years. A reversal
of an impairment loss is recognised immediately in the statement of
comprehensive income.
Research and development
The Group undertakes research and development to expand its activity in
technology and innovation to develop new products that will begin directly
generating revenue in the future. Expenditure on research is expensed as
incurred, development expenditure is capitalise only if the criteria for
capitalisation are recognised in IAS 38. The Company claims tax credits on its
research and development activity and recognises the income in current tax.
Critical judgements in applying accounting policies and key sources of
estimation uncertainty
The following are the critical judgements and key sources of estimation
uncertainty that the directors have made in the process of applying the
entity's accounting policies and that have the most significant effect on the
amounts recognised in these financial statements.
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in
use of the cash-generating units to which goodwill has been allocated. A
similar exercise is performed in respect of investment and long term loans in
subsidiary.
The value in use calculation requires the directors to estimate the future cash
flows expected to arise from the cash-generating unit and a suitable discount
rate in order to calculate present value, see note 10 for further details.
The carrying amount of goodwill at the year-end date was GBP1,190,000 (2018: GBP
1,190,000). The investment in subsidiaries at the year-end was GBP1,197,000
(2018: GBP1,197,000).
The methodology adopted in assessing impairment of Goodwill is set out in note
10 as is sensitivity analysis applied in relation to the outcomes of the
assessment.
Impairment investment in subsidiaries and inter-company receivables
As set out in note 12, an impairment assessment of the carrying value of
investments in subsidiaries and inter-company receivables is in line with the
methodologies adopted in the assessment of impairment of goodwill.
2. Segmental analysis
2019 2018
GBP'000 GBP'000
Turnover by geographical market
United Kingdom 6,509 4,787
Europe 29 -
Other 142 2
6,680 4,789
The Group operates out of one geographical location being the UK. Accordingly
the primary segmental disclosure is based on activity. Per IFRS 8 operating
segments are based on internal reports about components of the Group, which are
regularly reviewed and used by Chief Operating Decision Maker ("CODM") for
strategic decision making and resource allocation, in order to allocate
resources to the segment and to assess its performance. The Group's reportable
operating segments are as follows:
· Adien - Utility detection and mapping services - Sale of services
· Technology Division - Development, assembly and sale of GPR equipment -
Sale of goods
· QM Systems - Test system solutions - Sale of services
· TED - Rail trackside solutions (included in the test system solutions
segment) - Sale of services
The CODM monitors the operating results of each segment for the purpose of
performance assessments and making decisions on resource allocation.
Performance is based on revenue generations and profit before tax, which the
CODM believes are the most relevant in evaluating the results relative to other
entities in the industry.
In utility detection and mapping services one customer accounted for 20% of
revenue in 2019 and 5% in 2018. In development, assembly and sale of GPR
equipment one customer accounted for 39% of revenue in 2019 and two customers
for 54% in 2018. In automation and test system solutions one customer
accounted for 35% of revenue and 16% in 2018.
Information regarding each of the operations of each reportable segments is
included below, all non-current assets owned by the Group are held in the UK.
Utility Development, Automation and Total
detection assembly and test system
and mapping sale of GPR solutions
services equipment
GBP'000 GBP'000 GBP'000 GBP'000
Year ended 30 June 2019
Total segmental revenue
1,314 192 5,174 6,680
Operating profit (47) 34 70 57
Finance costs (10) (1) (34) (45)
Profit /(loss) before (57) 33 36 12
taxation
Segment assets 529 1,322 2,679 4,530
Segment liabilities 481 4,239 3,157 7,877
Non-current asset 75 - 62 137
additions
Depreciation and 55 - 35 90
amortisation
Utility Development, Automation and Total
detection assembly and test system
and mapping sale of GPR solutions
services equipment
GBP'000 GBP'000 GBP'000 GBP'000
Year ended 30 June 2018
Total segmental revenue
1,534 173 3,082 4,789
Operating profit 52 (102) (358) (408)
Finance costs (28) (149) (59) (236)
Profit / loss before 24 (109) (417) (502)
taxation
Segment assets 596 1,375 1,444 3,415
Segment liabilities 615 4,308 2,169 7,092
Non-current asset 91 - 457 548
additions
Depreciation and 63 - 43 106
amortisation
3. Finance costs
2019 2018
GBP'000 GBP'000
Interest receivable and other income (155) -
Interest payable 200 236
45 236
Interest receivable and other income
comprises of:
Loan adjustment (see below) 129 -
Other income 26 -
155 -
Interest payable comprises interest on:
Finance leases 14 8
Directors' loans 147 138
Other 39 90
200 236
Loan adjustment
The vendors of Thomson Engineering Limited agreed to amend the terms of the
acquisition and the liability owed to them was reduced from GBP200,000 to GBP
71,000, resulting in an adjustment of GBP129,000.
4. Operating profit for the year
This is arrived at after charging for the Group:
2019 2018
GBP'000 GBP'000
Research and development costs not capitalised 1,774 1,049
Depreciation of wholly owned property, plant 27 51
and equipment
Depreciation of property, plant and equipment 62 55
held under finance leases
Auditor's remuneration
- Fees payable to the Company's auditor for 43 28
the audit of the Group's financial statements
- Fees payable to the Company's auditor and
its subsidiaries for the provision of tax 7 4
services
Operating lease rentals:
- other including land and buildings 100 118
The Company audit fee is GBP9,000 (2018: GBP8,500).
5. Staff costs
2019 2018
No. No.
Average monthly number of employees, including directors:
Production and research 71 64
Selling and research 10 11
Administration 6 6
87 81
2019 2018
GBP'000 GBP'000
Staff costs, including directors:
Wages and salaries 2,928 2,408
Social security costs 284 253
Other pension costs 53 42
3,265 2,703
6. Directors' Remuneration
Salary Benefits 2019 2018
and fees in kind Total Total
GBP'000 GBP'000 GBP'000 GBP'000
G G Watt 71 - 71 71
S P Padmanathan 25 - 25 25
R MacDonnell 4 - 4 2
Aggregate emoluments 100 - 100 98
Directors' pensions 2019 2018
No. No.
The number of directors who are accruing retirement
benefits under:
- defined contributions policies
- -
The directors represent key management personnel.
Directors' share options
No. of options
Granted Date from
At start during At end of Exercise which
of year year year price exercisable
R MacDonnell 500,000 - 500,000 3.0p 6-Mar-15
S P 200,000 - 200,000 3.9p 15-Nov-19
Padmanathan
The Company's share price at 30 June 2019 was 4.25p. The high and low during
the period under review were 6.20p and 3.52p respectively.
In addition to the above, in consideration of loans made to the Company, G G
Watt has warrants over 3,703,703 ordinary shares at an exercise price of 13.5p
and a further 6,000,000 ordinary shares at an exercise price of 3.0p.
7. Taxation
2019 2018
GBP'000 GBP'000
United Kingdom Corporation Tax
Current taxation (306) (329)
Adjustments in respect of prior years
6 (22)
(300) (351)
Deferred taxation
- -
Tax on profits/loss (300) (351)
Current tax reconciliation 2019 2018
GBP'000 GBP'000
Taxable profit/(loss) for the year
12 (502)
Theoretical tax at UK corporation tax 2 (95)
rate 19% (2018: 19%)
Effects of:
- R&D tax credit adjustments (333) (186)
- Income not taxable (3) (27)
- other expenditure that is not tax 6 8
deductible
- adjustments in respect of prior 4 (22)
years
- short term timing differences
24 (29)
Total income tax credit
(300) (351)
The Group has tax losses amounting to approximately GBP2,650,000 (2018: GBP
2,460,000), available for carry forward to set off against future trading
profits. No deferred tax assets have been recognised in these financial
statements due to the uncertainty regarding future taxable profits.
Potential deferred tax assets not recognised are approximately GBP450,000 (2018:
GBP418,000)
8. (Loss)/profit per share
Basic (pence per share) 2019 - 0.91 profit per share; 2018 - 0.45 loss per
share
This has been calculated on a profit of GBP312,000 (2018: loss of GBP151,000) and
the number of shares used was 34,126,707 (2018: 33,543,803) being the weighted
average number of shares in issue during the year.
Diluted (pence per share) 2019 - 0.72 profit per share; 2018 - 0.45 loss per
share
In the prior year the potential ordinary shares included in the weighted
average number of shares are anti-dilutive and therefore diluted earnings per
share is equal to basic earnings per share. The current year calculation used
earnings of GBP392,000 being the profit for the year, plus the interest paid on
the convertible loan note (net of 20% tax) of GBP80,000 and the number of shares
used was 54,657,116 being the weighted average number of shares outstanding
during the year of 34,126,707 adjusted for shares deemed to be issued for no
consideration relating to options and warrants of 530,409 and the impact of the
convertible instrument of 20,000,000.
1. Property, plant and equipment
Freehold Equipment, Leasehold Motor
fixtures improvements vehicles Total
and
fittings
GBP000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 July 2018 265 1,680 223 291 2,459
Additions - 137 - - 137
Disposals - (42) - - (42)
At 30 June 2019
265 1,775 223 291 2,554
Depreciation
At 1 July 2018 13 1,463 223 279 1,978
Charged in year 3 78 - 9 90
Disposals - (39) - - (39)
At 30 June 2019
16 1,502 223 288 2,029
Net book value
At 30 June 2019 249 273 - 3 525
At 30 June 2018
252 217 - 12 481
The net book value of the property, plant and equipment includes GBP199,268
(2018: GBP195,322) in respect of assets held under finance lease agreements.
These assets have been offered as security in respect of these finance lease
agreements. Depreciation charged in the period on those assets amounted to GBP
61,791 (2018: GBP55,183).
10. Goodwill
Goodwill Total
GBP'000 GBP'000
Cost:
At 1 July 2018 and 30 June 2019
1,250 1,250
Impairment
At 1 July 2018 and 30 June 2019
60 60
Net book value
At 30 June 2019 1,190 1,190
At 30 June 2018 1,190 1,190
The goodwill carried in the statement of financial position of GBP1,190,000 arose
on the acquisition of Adien Limited in 2002 (GBP212,000) and the acquisition of
QM Systems Limited in 2006 (GBP849,000), and the acquisition of TED in 2017 (GBP
129,000).
Adien Limited represents the segment utility detection and mapping services and
QM Systems Limited represents the segment test system solutions.
QM Systems Limited is involved in projects surrounding:
· The creation of innovative automated assembly systems for the
manufacturing, food and pharmaceutical sectors.
· The provision of inspection systems for the automotive, aerospace rail
and pharmaceutical sectors.
· Automated test systems.
The Group tests goodwill annually for impairment or more frequently if there
are indicators that it might be impaired.
The recoverable amounts are determined from value in use calculations which use
cash flow projections based on financial budgets approved by the directors
covering a five year period. The key assumptions are those regarding the
discount rates, growth rates and expected changes to sales and direct costs
during the period. Management estimates discount rates using pre-tax rates that
reflect current market assessments of the time value of money and the risks
specific to the business. This has been estimated at 10% per annum reflecting
the prevailing pre-tax cost of capital in the Company. The growth rates are
based on forecasts and historic margins achieved in both Adien Limited, QM
Systems Limited and TED. For Adien these have been assessed as 8% growth for
revenue in years 1 and 5% for years 2 and 3 and 2.5% thereafter and 2.5% for
overhead growth. For QM Systems these have been assessed as 34% growth for
revenue in year 1 and 10 % in year 2 and 3 and 5% for years 3 to 5 and 5% for
overhead growth. For TED these have been assessed as 20% growth for revenue in
year 1 and 10 % in year 2 and 3 and 5% for years 3 to 5 and 2.5% for overhead
growth. No terminal growth rate was applied. The reason for the significant
Year 1 revenue growth in QM and TED is an expectation based on current trading
and the pipeline.
The directors believe that any reasonable possible change in the key
assumptions on which the recoverable amount is based would not cause the
carrying amount of goodwill attributed to Adien Limited, QM Systems Limited and
TED to exceed the recoverable amount except as disclosed below:
If the Adien starting revenue growth was reduced to FY 2019 levels and
inflationary growth rates applied to revenue and costs then goodwill would be
impaired by GBP130,000. The directors have regard to the sales pipeline and are
satisfied that the forecast revenues and growth rates used can be achieved.
11. Inventories
2019 2018
GBP'000 GBP'000
Raw materials 71 87
Finished goods
63 91
134 178
The replacement cost of the above inventories would not be significantly
different from the values stated.
The cost of inventories recognised as an expense during the year amounted to GBP
2,241,000 (2018: GBP1,157,000). For the Parent Company this was GBP35,000 (2018: GBP
37,000).
12. Trade and other receivables
2019 2018
GBP'000 GBP'000
Current
Trade receivables 1,038 720
Prepayments and accrued 554 455
income
1,592 1,175
13. Non-current liabilities: borrowings
2019 2018
GBP'000 GBP'000
Borrowings (note 15) 2,661 2,966
14. Trade and other payables
2019 2018
Current GBP'000 GBP'000
Bank overdraft - 13
Trade payables 1,071 743
Other taxation and social 272 329
security
Payments received on account 1,431 437
Accruals and other creditors 496 450
3,270 1,972
2019 2018
Non-current GBP'000 GBP'000
Trade payables - -
Other creditors 3 8
3 8
The performance obligations of the IFRS 15 contract liabilities (payments
received on account) are expected to be met within the next financial year.
15. Borrowing analysis
2019 2018
GBP'000 GBP'000
Due within one year
Bank and other loans 146 426
Directors' loan 1,714 1,658
Obligations under finance lease
agreements 83 62
1,943 2,146
Due after more than one year
Obligations under finance lease 89 118
agreements
Bank and other loans 139 311
Directors' loan
2,433 2,537
2,661 2,966
Repayable
Due within 1 year 1,943 2,146
Over 1 year but less than 2 years 2,472 2,774
Over 2 years but less than 5 years
189 192
4,604 5,112
Directors' loan
Included with Directors' loans and borrowings due within one year are accrued
fees and interest owing to GG Watt of GBP1,601,000 (2018: GBP1,658,000). The
accrued fees and interest is repayable on demand and no interest accrues on the
balance.
The director's loan due in more than one year is a loan of GBP2,433,000 from G G
Watt. Directors' loans attract interest at 2.15% over Bank of England base
rate. During the year to 30 June 2018 GBP100,000 (2018: GBPnil) was repaid. The
Company has the right to defer repayment for a period of 366 days.
On 13 August 2010 the Company issued GBP1 million of Convertible Unsecured Loan
Stock ("CULS") to G G Watt, the Chairman of the Company. The CULS were issued
to replace loans made by G G Watt to the Company amounting to GBP1 million and
has been recognised in non-current liabilities of GBP2,433,000.
Pursuant to amendments made on 13 November 2014 and 9 November 2018, the
principal terms of the CULS are as follows:
- The CULS may be converted at the option of Gordon Watt at a price
of 5p per share at any time prior to 13 August 2022;
- Interest is payable at a rate of 10 per cent per annum on the
principal amount outstanding until converted, prepaid or repaid, calculated and
compounded on each anniversary of the issue of the CULS. On conversion of any
CULS, any unpaid interest shall be paid within 20 days of such conversion;
- The CULS are repayable, together with accrued interest on 13 August
2022 ("the Repayment Date").
No equity element of the convertible loan stock was recognised on issue of the
instrument as it was not considered to be material.
Finance leases
Finance lease agreements with Close Motor Finance are at a rate of 4.5% and
5.19% over base rate. The future minimum lease payments under finance lease
agreements at the year end date was GBP133,822 (2018: GBP116,844) and GBP38,102
(2018: GBP62,167). The difference between the minimum lease payments and the
present value is wholly attributable to future finance charges.
Bank and other loans
A working capital loan balance of GBP227,000 was given by Mirrasand Partnership
from a trust settled by Mr G Watt. The loan attracts interest at 10% per annum.
The loan was repaid on 25 April 2019.
Included in bank and other loans is an invoice discounting facility of GBP127,000
(2018 GBP133,000).
Included in bank and other loans is a secured mortgage of GBP157,850 which
incurred an interest of 4.42% until March 2019 followed by a rate of 2.44% over
base rate for 10 years, and an interest rate of 2.64% over base rate until
March 2029. The mortgage is secured over the freehold property.
2019
Brought Cash Non-cash: Non-cash: Carried
forward flows New leases Accrued fees forward
/interest
Director loan 4,195 (207) - 159 4,147
Finance leases 180 (69) 62 (1) 172
Other 737 (469) - 17 285
Loans and 5,112 (745) 62 175 4,604
borrowings
2018
Brought Cash Cash: Cash: Non-cash: Carried
forward flows advance Discounting Accrued forward
facility* costs
Director 4,083 (10) - - 122 4,195
loan
Finance
leases 64 (34) 76 74 - 180
Other
306 - 408 - 23 737
Loans and
borrowings 4,453 (44) 484 74 145 5,112
*Included in working capital adjustments in cashflow statement
16. Financial Instruments and derivatives
The Group uses financial instruments, which comprise cash and various items,
such as trade receivables and trade payables that arise from its operations.
The main purpose of these financial instruments is to finance the Group's
operations.
The main risks arising from the Group's financial instruments are credit risk,
liquidity risk and interest rate risk. A number of procedures are in place to
enable these risks to be controlled. For liquidity risk these include profit/
cash forecasts by business segment, quarterly management accounts and
comparison against forecast. The board reviews and agrees policies for
managing this risk on a regular basis.
Credit risk
The credit risk exposure is the carrying amount of the financial assets as
shown in note 12 (with the exception of prepayments which are not financial
assets) and the exposure to the cash balances. Of the amounts owed to the
Group at 30 June 2019, the top 3 customers comprised 56.78% (2018: 19.38%) of
total trade receivables.
The Group has adopted a policy of only dealing with creditworthy counterparties
and the Group uses its own trading records to rate its major customers, also
the Group invoices in advance where possible. The Group's exposure and the
credit ratings of its counterparties are continuously monitored and the
aggregate value of transactions concluded is spread amongst approved
counterparties. Having regard to the credit worthiness of the Groups
significant customers the directors believe that the Group does not have any
significant credit risk exposure to any single counterparty.
An analysis of trade and other receivables:
2019 Neither
Carrying impaired
amount nor past Past due but not impaired
due
61-90 days 91-120 days More than
121 days
Trade and
other 1,038 919 46 13 60
receivables
2018 Neither
Carrying impaired
amount nor past Past due but not impaired
due
61-90 days 91-120 days More than
121 days
Trade and
other 720 532 102 12 74
receivables
Interest rate risk
As disclosed in note 15 the Group is exposed to changes in interest rates on
its borrowings with a variable element of interest. If interest rates were to
increase by one percentage point the interest charge would be GBP28,000 higher.
An equivalent decrease would be incurred if interest rates were reduced by one
percentage point.
The Group has adopted a policy of only dealing with creditworthy counterparties
and the Group uses its own trading records to rate its major customers, also
the Group invoices in advance where possible. The Group's exposure and the
credit ratings of its counterparties are continuously monitored and the
aggregate value of transactions concluded is spread amongst approved
counterparties. Having regard to the credit worthiness of the Groups
significant customers the directors believe that the Group does not have any
significant credit risk exposure to any single counterparty.
The Group allows an average receivables payment period of 60 days after invoice
date. It is the Group's policy to assess receivables for recoverability on an
individual basis and to make provision where it is considered necessary. No
debtors' balances have been renegotiated during the year or in the prior year.
As at 30 June 2019, trade receivables of GBPnil (2018: GBPnil) were impaired and
provided for.
Liquidity risk
As stated in note 1 the Executive Chairman, G G Watt, has pledged to provide
ongoing financial support for a period of at least twelve months from the
approval date of the Group statement of financial position. It is on this basis
that the directors consider that neither the Group nor the Company is exposed
to a significant liquidity risk. Notes 14 and 15 disclose the maturity of
financial liabilities.
Contractual maturity analysis for financial liabilities, (see note 15 for
maturity analysis of borrowings):
2019 Due or due Due between Due between Due between Total
in less 1-3 months 3 months-1 1-5 years
than 1 year
month
Trade and
other 1,567 - - 3 1,570
payables
2018 Due or due Due between Due between 3 Due Total
in less 1-3 months months-1 year between
than 1 1-5 years
month
Trade and
other 1,206 - - 8 1,214
payables
Financial liabilities of the Company are all due within less than one month
with the exception of the intercompany balances that are due between 1 and 5
years.
Interest rate risk
The Group finances its operations through a mixture of shareholders' funds and
borrowings. The Group borrows exclusively in Sterling and principally at fixed
and floating rates of interest and are disclosed at note 16.
Fair value of financial instruments
Loans and receivables are measured at amortised cost. Financial liabilities
are measured at amortised cost using the effective interest method. The
directors consider that the fair value of financial instruments are not
materially different to their carrying values.
Capital risk management
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to be able to move to a
position of providing returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce the cost of
capital.
The Group manages trade debtors, trade creditors and borrowings and cash as
capital. The entity is meeting its objective for managing capital through
continued support from GG Watt as described per Note 1.
17. Share capital
2019 2019 2018 2018
No GBP'000 No GBP'000
Authorised
Ordinary shares of 1p 40,000,000 400 40,000,000 400
each
Allotted and fully
paid
Brought forward 34,020,515 340 33,020,515 330
Issued during the 340,000 4 1,000,000 10
year
Carried forward
34,360,515 344 34,020,515 340
Fully paid ordinary shares carry one vote per share and carry a right to
dividends.
During the year the Company issued 340,000 ordinary 1p shares for 5p per share
as part of the consideration for the vendor loan adjustment regarding the
acquisition of Thomson Engineering Design Limited.
11,403,703 (2018:11,403,703) share options were outstanding at the year end,
comprising the 1m employee options and the 10,403,703 share options and
warrants held by directors disclosed below. No options or warrants were
exercised.
Share based payments have been included in the financial statements where they
are material. No share based payment expense has been recognised.
No deferred tax asset has been recognised in relation to share options due to
the uncertainty of future available profits.
The director and employee share options were issued as part of the Group's
strategy on key employee remuneration, they lapse if the employee ceases to be
an employee of the Group during the vesting period.
Employee options
Date Options Exercisable Number of Shares Exercise Price
Between March 2015 and March 2022 500,000 3.75p
Between July 2016 and July 2023 100.000 3.00p
Between November 2019 and 400,000 3.875p
November 2026
Directors' share options
No. of options
Granted Date from
At start during At end of Exercise which
of year year year price exercisable
R MacDonnell 500,000 - 500,000 3.0p 6-Mar-15
S P 200,000 - 200,000 3.9p 15-Nov-19
Padmanathan
The Company's share price at 30 June 2019 was 4.25. The high and low during the
period under review were 6.20p and 3.52p respectively.
In addition to the above, in consideration of loans made to the Company, G G
Watt has warrants over 3,703,703 ordinary shares at an exercise price of 13.5p
and a further 6,000,000 ordinary shares at an exercise price of 3.0p, the
warrants expired on 12 December 2018.
The weighted average contractual life of options and warrants outstanding at
the year-end is 3.89 years (2018: 1.2 years).
18. Financial commitments
2019 2018
GBP'000 GBP'000
Capital commitments
Capital expenditure commitments
contracted for, but
not provided in the financial - -
statements were as follows:
Operating lease commitments
The future aggregate minimum
lease payments under
non-cancellable operating leases
are as follows:
2019 2018 2019 2018
Land and Building Motor Vehicles
* Within one year 37 35 16 16
* One to five years 140 - 19 -
* Over five years 12 - - -
189 35 35 16
19. Related party transactions
Directors' loan disclosures are given in note 15. The interest payable to
directors in respect of their loans during the year was:
G G Watt - GBP146,993
The directors are considered the key management personnel of the Company.
Remuneration to directors is disclosed in note 6.
As at 30 June 2019, there was an amount of GBPnil (2018: GBP3,444) due from Online
Engineering Limited, a company that G G Watt is also a Director.
Included within the amounts due from and to Group undertakings were the
following balances:
2019 2018
GBP GBP
Balance due from:
Adien Limited - -
QM Systems Limited - 459,375
Thomson Engineering Design Limited 322,603 73,643
Balance due to:
Adien Limited 106,858 32,141
QM Systems Limited 1,125,390 1,405,866
These intergroup balances vary through the flow of working capital requirements
throughout the Group as opposed to intergroup trading.
There is no ultimate controlling party of PipeHawk plc.
20. Subsequent events
On 16 October 2019 the Group announced that it had acquired the entire issued
share capital of Wessex Precision Instruments Limited ("Wessex") for a
consideration of GBP1 (the "Acquisition"). Wessex produces and sells a range of
equipment for testing the slip resistance characteristics of aggregates used in
public areas, including in supermarkets and around swimming pools. The Board
believes that the Wessex business presents a number of synergistic cost saving
opportunities for the Company and will complement the Company's subsidiary QM
Systems and its existing portfolio of test and measurement equipment.
In the year ended 31 March 2019, Wessex recorded unaudited revenues of
approximately GBP340,000 and an unaudited loss after tax of approximately GBP
61,000. As at 31 March 2019, Wessex had net liabilities of approximately GBP
52,000.
The Company is evaluating the fair value of the assets acquired and liabilities
assumed and any necessary pro forma financial information.
21. Copies of Report and Accounts
Copies of the Report and Accounts will be posted to shareholders later today
and will be shortly be available from the Company's registered office, Manor
Park Industrial Estate, Wyndham Street, Aldershot, Hampshire GU12 4NZ and from
the Company's website www.pipehawk.com.
22. Notice of Annual General Meeting
The annual general meeting of PipeHawk plc will be held at the offices of
Allenby Capital Limited, 5 St Helen's Place, London, EC3A 6AB at 10:00 a.m. on
Thursday 12 December 2019.
END
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